Too many negative moving parts, best trade is the reopening one: Avendus’ Andrew Holland

Avendus Capital's Andrew Holland believes that the sell-off will continue until there is some kind of ceasefire between Russia and Ukraine, or the Fed decides to stop rate hikes.

The market is trending downwards because it is trying to price in “many negative moving parts”, said Andrew Holland, CEO at Avendus Capital Public Markets Alternative Strategies.

“It has become messy isn’t it,” he told CNBC-TV18 on May 9, while referring to the Federal Reserve rate hikes, high inflation and low growth in various developed economies. “There is stagflation in Europe. There is a recession coming for sure and we haven’t seen this kind of tightening in the US,” he added.

“This is very much a sit-in-the-sidelines (market). Let volatility and the messy central bank policy play out over the next quarter,” he said.

Holland said the pain would continue till the market believes that the Fed won't raise hikes anymore. "There will be volatility unless two things happen. One, there will be some kind of ceasefire in Russia-Ukraine, or two, the Fed says we are done (with the rate hikes) for now," he said.

Also read: Factors driving the sell-off on Dalal Street

There are a few places to hide and among them are the reopening trade, energy and metals, he said. “I would have said technology stocks but they would get tarred by the same brush as growth stocks of technology in the US. The sentiment will turn against them… not that they will take a hit in the earnings. They (the Indian tech stocks) benefitted from it (the association) and now they will be hurt by it,” he said.

Resilience of the Indian market

India’s markets may fall by 5 percent, while global markets may fall further, even by 10 percent, according to him.

“There is still growth in India and reopening is the only trade there is now, and India is still reopening while the global markets have already done so,” he said.

In all the uncertainty and heavy FII selling, Indian markets have held up because of strong domestic inflows.

“While the headline index has been resilient, the pain below the index has been quite severe. There has been a 30-50 percent correction in a large number of stocks. If that pain is going to continue, and it looks like it will in the quarter, then there might be a slowdown (in domestic fund inflows) but I don’t think it will be anything dramatic,” he said.

This is already starting to show in the developed markets. “We saw that in the results of Robinhood, where they are saying that activity is slowing down and they are laying off people,” he said.

The platform made headlines for bringing a large number of retail investors into equity markets, with its zero-commission model.

“In the developed markets, the number of day traders is starting to fall quite dramatically… It is probably a trend and it could occur here (in India) if the markets continue to see so much volatility over the next few months,” he said.